Correlation Between UnitedHealth Group and Ecolab

Can any of the company-specific risk be diversified away by investing in both UnitedHealth Group and Ecolab at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining UnitedHealth Group and Ecolab into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between UnitedHealth Group Incorporated and Ecolab Inc, you can compare the effects of market volatilities on UnitedHealth Group and Ecolab and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in UnitedHealth Group with a short position of Ecolab. Check out your portfolio center. Please also check ongoing floating volatility patterns of UnitedHealth Group and Ecolab.

Diversification Opportunities for UnitedHealth Group and Ecolab

-0.73

Correlation Coefficient

UnitedHealth Group  Ecolab

Pay attention - limited upside

The 3 months correlation between UnitedHealth and Ecolab is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding UnitedHealth Group Incorporate and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and UnitedHealth Group is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on UnitedHealth Group Incorporated are associated (or correlated) with Ecolab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecolab Inc has no effect on the direction of UnitedHealth Group i.e., UnitedHealth Group and Ecolab go up and down completely randomly.

Pair Corralation between UnitedHealth Group and Ecolab

Assuming the 90 days trading horizon UnitedHealth Group Incorporated is expected to generate 2.27 times more return on investment than Ecolab. However, UnitedHealth Group is 2.27 times more volatile than Ecolab Inc. It trades about 0.1 of its potential returns per unit of risk. Ecolab Inc is currently generating about 0.18 per unit of risk. If you would invest  741,241  in UnitedHealth Group Incorporated on October 12, 2024 and sell it today you would earn a total of  327,658  from holding UnitedHealth Group Incorporated or generate 44.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

UnitedHealth Group Incorporate  vs.  Ecolab Inc

UnitedHealth Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UnitedHealth Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Ecolab Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Ecolab is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with UnitedHealth Group and Ecolab

The main advantage of trading using opposite UnitedHealth Group and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UnitedHealth Group position performs unexpectedly, Ecolab can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Ecolab will offset losses from the drop in Ecolab's long position.

The idea behind UnitedHealth Group Incorporated and Ecolab Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.